Donald R. Kimble - Chief Financial Officer and Member of Executive Council

Christopher Marrott Gorman - Vice Chairman of Keybank National Association and President of Key Corporate Bank

William R. Koehler - President of Key Community Bank

Joseph M. Vayda - Executive Vice President, Treasurer and Member of Executive Council

Analysts

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Erika Najarian - BofA Merrill Lynch, Research Division

Bryan Batory - Jefferies LLC, Research Division

Keith Murray - ISI Group Inc., Research Division

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Tom Hennessy - CLSA Limited, Research Division

Nicholas Karzon - Crédit Suisse AG, Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Presentation

Operator

Good morning, and welcome to KeyCorp's Third Quarter 2013 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Chairman and CEO, Ms. Beth Mooney. Please go ahead.

Beth E. Mooney

Thank you, operator. Good morning, and welcome to KeyCorp's Third Quarter 2013 Earnings Conference Call. Joining me for today's presentation is Don Kimble, our Chief Financial Officer. And available for the Q&A portion of the call are the leaders of Key Corporate Bank and Key Community Bank, Chris Gorman and Bill Koehler. Also joining us for the Q&A discussion are our Chief Risk Officer, Bill Hartmann; and our Treasurer, Joe Vayda.

Slide 2 is our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments, as well as the question-and-answer segment of our call.

Turning to Slide 3. Our results reflect another quarter of improved performance as we had positive trends in core revenue and expenses, and our credit quality improved to levels we haven't seen since 2007. We also continue to execute on our capital priorities. Revenue benefited from solid loan growth, driven by an 11% increase from the prior year in commercial, financial and agricultural loans, as well as improved trends in several of our fee-based businesses.

Importantly, we continue to have success in acquiring and expanding relationships. For example, in our corporate investment banking and real estate areas, we have generated 21% more revenue from new clients year-to-date versus the same period in 2012, reflecting our more targeted approach and the benefits of our distinctive business model.

As you have seen over the past several quarters, this model has allowed us to capitalize on revenue opportunities. Whether through execution in the capital markets when conditions are favorable or by offering on balance sheet alternatives, our commitment remains the same: to do what's right for our clients.

We also continue to invest in our businesses, as well as address areas that do not fit our relationship strategy. In this quarter, we have examples of both. As announced, we completed our commercial real estate servicing acquisition. This brought in over $1 billion in low-cost escrow deposits and further leverages our existing platform. We are now the third largest servicer of commercial and multifamily loans and the fifth largest special servicer of CMBS in the United States.

The sale of Victory Capital Management was also completed on July 31, resulting in an after-tax gain of $92 million. Additional gain may be realized as the profits of receiving client consent continues through January of 2014.

We also made good progress on expenses this quarter. Importantly, we met our announced expense target that we set in June of 2012 to achieve annualized savings of $200 million. This reflects the dedication and hard work of our entire team to make some difficult choices, to reduce costs and make us a more efficient company.

As a result, noninterest expense, excluding efficiency-related charges, was down 4% from the prior year. And as Don will discuss, our adjusted cash efficiency ratio was 64% this quarter, at the upper end of our near-term goal of 60% to 65%. Although this is an important milestone for us, it is not an endpoint. This is now part of our culture, and we are already working to improve efficiency and productivity by identifying new opportunities to grow revenue and reduce and variabilize our expenses.

I'll finish with a couple of comments on capital. During the third quarter, we repurchased $198 million in common shares as we continue to execute on our current repurchase authorization, and our Tier 1 common ratio remained above 11%. We will remain disciplined in the way we manage our strong capital position and stay consistent with our stated priorities of supporting organic growth, dividend, share repurchase and opportunistic growth.

Overall, it was a very good quarter for Key, and it positions us well through the end of the year and as we move into 2014. We are optimistic that progress is being made in Washington, and we continue to encourage our leaders to work together to find a solution that is in the best interest of our country. It would be regrettable to reverse the progress we've made in the recovery, as well as the progress we've made to regain client, investor and global confidence in our financial system.

However, at Key, our focus remains the same and that is to execute on our business model, drive and invest for growth, become more efficient and productive and to be disciplined in the way we manage our capital.

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